Purple Innovation, Inc. Aktie

Thank you for standing by, and welcome to the Purple Innovation First Quarter 2026 Earnings Conference Call.[Operator Instructions] I'd now like to turn the call over to Stacy Turnof, Investor Relations. You may begin.

Thank you for joining Purple Innovation's First Quarter 2026 Earnings Call. A copy of our earnings press release is available on the Investor Relations section of Purple's website at www.purple.com. Before we begin, I'd like to remind you that certain statements made in this presentation are forward-looking statements. These statements reflect Purple Innovation's judgment and analysis as of today and are subject to a variety of risks and uncertainties that could cause actual results to differ materially from current expectations. You should not place undue reliance on these forward-looking statements.

For more information, please refer to the risk factors outlined in our filings with the SEC. Additionally, today's presentation will reference non-GAAP financial measures such as adjusted gross margin, adjusted operating expenses, adjusted EBITDA, adjusted net loss and adjusted net loss per share.

A reconciliation of these measures to their most comparable GAAP measures can be found in the earnings release available on our website. With that, I'll turn the call over to Rob DeMartini, Purple Innovation's Chief Executive Officer.

We entered 2026 building on the progress we made in the fourth quarter, and our first quarter reflects continued progress and greater consistency across our channels. Trends were solid during the quarter with growth in showroom and wholesale. E-commerce also improved sequentially from the fourth quarter with March performance approximately flat to prior year. Importantly, we continue to see the benefits of actions taken last year reflected in our operating expense performance.

This progress is a direct result of the changes we've made to the business, not a recovery of the broader market, reinforcing the durability of the model we've been building. We're entering the second quarter with improving trends and are positioned for a step-up in performance. In the first quarter, total sales were down 8% as lower e-commerce and wholesale sales more than offset the gains in our showroom channel.

That said, e-commerce trends improved sequentially, declining 10% in the first quarter compared with down 15% in the prior period, reflecting more disciplined marketing execution and early signs of improved conversion.

Wholesale performance was impacted by an accounting-related item, which Todd will cover in more detail. Excluding this accounting impact, net revenue would have been $100.6 million or down 3.4% year-over-year. Showroom performance remained a bright spot with sales up 5% and comps up 7%, marking our third consecutive quarter of positive comp growth. Wholesale sales were down approximately 11% in the quarter, but excluding the impact of the accounting-related item, were up 1%.

We saw improving sell-through trends at Mattress Firm throughout the quarter with our revenue performance building as the quarter progressed, supported by strong demand for our premium offerings, including Rejuvenate 2.0. We're encouraged by the continued evolution of our partnership with Mattress Firm, where sell-through improved consistently, supported by strong engagement from their sleep experts and solid traction in expansion doors.

We also began rolling out our new Royale collection late in the quarter. And while still early, initial sell-through has been in line with expectations and reinforces the strength of our premium offering. Our accessory business continues to perform well with our expanded pillow assortment at Mattress Firm performing above plan and driving incremental growth.

At Costco, our in-store furniture event performed as expected, further supporting our confidence in the long-term opportunity with that partner. A year ago, we were focused on stabilizing the business by rightsizing our cost structure, strengthening the foundation and restoring profitability in a tougher environment. Now our focus is on driving growth. That growth is centered on 3 priorities.

As we highlighted last quarter, number one, deepening our understanding of the consumer; number two, delivering better sleep through product experience; and number three, expanding distribution and executing with financial discipline across the business. These priorities reflect how we're operating today.

Let me update you on our progress against each. First, knowing the consumer. This continues to shape how we show up across channels. We're shifting away from promotionally led messaging towards clear benefit-driven storytelling focused on GelFlex Grid technology and how Purple delivers better sleep. We've deepened our understanding of our core customer and what's driving their decisions.

Today, what we're seeing is a customer with clear need, but one that has historically approached the category as a price-driven replacement purchase rather than a performance decision.

That dynamic has limited conversion and reduced the effectiveness of traditional marketing approaches centered on promotion. At the same time, our data continues to show that when customers are educated on the functional benefits of our technology, particularly around pain relief and sleep quality, conversion improves and mix shifts higher.

That insight is shaping how we approach the market with a greater focus on clarifying the value proposition, improving mid-funnel education and aligning our messaging to the outcomes customers are seeking rather than leading with the product features or discounts.

On the marketing front, our strategy is focused on 3 things: delivering on the Purple brand promise of less pain, better sleep at every touch point; growing the earned traffic that brings high-intent customers to our website and driving more consumers into our retail and wholesale stores where the product can be experienced.

We're sharpening our focus on answering the key question, "why Purple?", making our differentiation clearer, our content more educational and our local marketing more effective at converting awareness into foot traffic. The GelFlex Grid is a genuinely different innovation, and we believe we have meaningful headroom to tell that story more powerfully. We're also seeing early benefits from increased discipline in our marketing execution, including more effective search optimization, more disciplined spending and a shift towards higher impact channels.

This is driving higher quality traffic and improving conversion, particularly in e-commerce. We're also seeing an increase in unsolicited consumer feedback with consumers reaching out directly to share their experiences, particularly around pain relief and improved sleep quality. We're incorporating these insights into our messaging through testimonial videos to better reflect what matters most to consumers.

In addition, we partnered with a new marketing agency that's helping refine the quality of traffic and optimize our media mix with an emphasis on awareness and consideration across the funnel in a more evergreen approach. We also continue to make changes in our creative approach and how we guide consumers through the online purchase journey with a more focused and tactical path to identifying the right mattress. These changes are resulting in improved engagement and conversion. Second, delivering better sleep through product experience and expanded distribution. Our innovation continues to resonate with our premium products maintaining strong traction across both showroom and wholesale channels. During the quarter, we saw strong initial response from the launch of Purple Royale, our new Luxe offering developed in partnership with Mattress Firm.

Early feedback has been strong with encouraging sell-through trends in the early weeks following the launch and growing adoption among sales associates. Today, Purple Royale is in 3,100 slots across Mattress Firm's 2,200 stores. While still early, we're encouraged by our performance and the strong consumer response to in-store engagement in Purple Royale. We also benefited from increased marketing support for Mattress Firm, including one of the largest co-marketing investments in our partnership to date, which is helping drive awareness and traffic.

Additionally, Rejuvenate 2.0 continues to perform in line with expectations with strong demand across the lineup, including our highest priced models. In the first quarter, the Rejuvenate 2.0 collection was 56% of our showroom mattress revenue, demonstrating the positive customer response to the new product. This performance reinforces the strength of our premium positioning and the resonance of our innovation with consumers. We're also seeing a positive halo effect across the portfolio, supporting performance in adjacent categories. In addition to product innovation, we're focused on elevating the full consumer journey across both owned and partner channels.

This includes improving how we present and explain our technology in store with greater emphasis on pain relief and more effective use of demonstrations and digital support. This is resulting in improved engagement from retail sales associates, particularly within our wholesale channel as our product storytelling continues to resonate. We've also made changes to our online sales approach, enhancing live customer care and follow-up to better replicate the in-store experience in a digital environment, which is helping improve engagement and conversion rates.

At the same time, we're enhancing our delivery experience to ensure a more consistent and credible brand experience from purchase through fulfillment. These improvements are helping reinforce our value proposition and supporting stronger conversion. We continue to focus on expanding our distribution presence so customers can find us across multiple channels. Our premium innovation continues to support that expansion. The launch of our Purple Royale collection at Mattress Firm in March is driving incremental distribution across our wholesale channel and represents an important step forward in our partnership with Mattress Firm as we continue to evolve both our product offering and in-store presence. We're also expanding our assortment with Mattress Firm with the rollout of additional pillow offering, which is performing in line with our expectations and helping to deepen our presence in stores at Mattress Firm.

In addition, Costco continues to perform well with revenues up over double last year's volume. As expected, this program will pause before returning again later in the year. At Sam's Club, our in-store pillow displays are performing well and helping introduce the brand to a broader audience.

Based on the strength of our recent sell-through, we're planning additional events with Sam's. We're also seeing continued opportunity to expand our pillow assortment with select retail partners, including incremental additions within Walmart. In addition, we generated solid performance from the recent QVC event, which provided additional exposure and incremental reach for the brand. We see more opportunities ahead with QVC. Amazon was a standout during the quarter, delivering strong growth. We've shifted more of our assortment to fulfilled by Amazon, improving in-stock levels, delivery speed and overall customer experience while also helping us reach new consumers.

We see a meaningful opportunity to continue scaling this channel. Taken together, these efforts are expanding our reach with key partners and support continued growth in our wholesale. Finally, executing with financial discipline.

We've taken a meaningful step to resize and simplify the business, and we're seeing these benefits reflected in our operating efficiency and cost structures. These actions have created a more stable foundation as we shift towards growth. In the first quarter, gross margins came in below our normal 40% baseline, primarily driven by higher levels of floor model discounts associated with the Purple Royale rollout at Mattress Firm, which impacted both pricing and mix.

We view this as a temporary and as the floor model transition normalizes, we expect improved contribution from Royale, which remains a key driver of margin expansion over time alongside Rejuvenate 2.0.

We've seen similar dynamics during prior transitions and would expect a comparable normalization as the floor model activity moderates. At the same time, we're making continued progress in our underlying cost structure, particularly across sourcing, operations and fulfillment, supported by ongoing productivity initiatives and supply chain optimization efforts.

We're also actively managing a more dynamic cost environment, including tariff dynamics and rising input costs. Our mitigations are well underway, including diversifying our supplier base, expanding multi-sourcing and selectively in-sourcing key components such as pillows where we see both cost and quality benefits.

These actions contributed to approximately $2 million of cost savings in the quarter. As we look ahead, we expect tariffs to be a modest tailwind this year while we continue to actively manage other input cost pressure. We're also navigating pressure in foam input costs, which remain a near-term headwind, but is being actively managed through our sourcing and mitigation actions.

In addition, tighter inventory management remains a focus, and we delivered a reduction in the first quarter inventory levels, helping to improve working capital efficiency. While mix remains an important driver over time, especially as higher-priced products like Rejuvenate 2.0 continue to scale, the first quarter reflects some near-term variability. As we look ahead, we remain focused on improving margins and continue to believe the business can support gross margins around 40% over time as operational improvements take hold while acknowledging that external factors, including input cost volatility and broader macro conditions may create variability in the near term.

Todd will walk you through the key drivers in more detail. Turning to our outlook. We're updating our revenue guidance to a range of $465 million to $485 million from the prior range of $500 million to $520 million due to the accounting-related adjustment discussed earlier. We're maintaining our adjusted EBITDA guidance of $20 million to $30 million. The outlook reflects the continued momentum in our premium product portfolio, expanded wholesale distribution and operating leverage in the business as volume grows.

Our guidance does not assume a recovery in broader market and reflects the progress we've made across product, distribution and operations. We believe we are well positioned to deliver a meaningful earnings growth in 2026.

Before I turn it over to Todd, I want to briefly acknowledge that he will be stepping down as CFO effective May 1 to pursue another opportunity. Todd has been a strong partner to the business, helping strengthen our financial foundation and positioning Purple for this next phase.

We thank him for his contributions and wish him the very best in the next chapter. We're also pleased to welcome Bob Lucian as our next CFO. Bob brings deep experience across branded consumer businesses, including his time as CFO of La-Z-Boy, and we are confident in a seamless transition. And with that, I'll turn the call over to Todd.

Thank you, Rob, and good morning, everyone. As Rob discussed earlier, we are pleased with the momentum we entered the year with, which gave us confidence as we look to the rest of the year. Net revenue for the first quarter was $95.7 million, down 8.1% year-over-year. The decrease was primarily driven by softness in e-commerce and a $4.9 million accounting-related reduction to wholesale revenue, partially offset by growth in showrooms. Excluding this accounting-related impact, net revenue would have been $100.6 million or down 3.4% year-over-year. By channel, direct-to-consumer net revenue for the quarter was $59.4 million, down 6.2% compared to last year. Within DTC, showroom revenue increased approximately 5%, up for the third consecutive quarter, and comparable sales were up 7%, reflecting continued strength in Rejuvenate 2.0.

E-commerce revenue was down 10.6% in the quarter and was flat for the month of March, the first time in 3 years that we've seen a flat month in our e-commerce business.

Wholesale revenue decreased approximately 11%, primarily reflecting the $4.9 million accounting-related reduction associated with certain commercial payments to a manufacturer affiliated to Mattress Firm. Excluding this impact, wholesale revenue would have been up 1%, driven by growth with Mattress Firm and Costco. The accounting-related reclassification had no impact on gross profit dollars, EBITDA or cash flow, but it reduced net revenues and cost of sales by the same amount. Gross margin for the quarter was approximately 36.8%, driven by 2 primary factors.

First, we made a strategic investment in Royale floor models to support our Mattress Firm rollout. As a reminder, those floor models ship at roughly 50% of list price, which created a significant drag in the quarter. Second, we saw modest deleverage in our manufacturing overhead.

As we have improved inventory management, we produced fewer grids and mattresses compared to last year, which meant we were absorbing fixed manufacturing costs across a lower production base. Said differently, we have some fixed costs that remained relatively consistent, but with fewer units produced, the overhead absorption per unit was less favorable in the quarter. Importantly, this is primarily a timing dynamic between production and sales, not a change in the underlying health of the business. As production and shipments normalize, we expect gross margin to return to approximately 40% by the second half of the year. Operating expenses in the quarter were $52 million, down 6.3% versus $55.5 million last year.

The decrease reflects ongoing cost savings initiatives and benefits from prior restructuring actions, partially offset by higher spend related to the ongoing evaluation of strategic alternatives, which can vary from quarter-to-quarter. Our first quarter adjusted loss per share was $0.13 compared to an adjusted loss per share of $0.11 last year. Adjusted EBITDA in the first quarter was negative $4.8 million, generally in line with last year's level.

Now turning to the balance sheet. We ended the quarter with cash and cash equivalents of $25 million versus $24.3 million on December 31, 2025, the best first quarter cash performance in 7 years. Net inventories on March 31, 2026, were $58.1 million, down 2.7% compared to December 31, 2025.

Finally, let's turn to our outlook. As Rob mentioned earlier, we are updating our full year revenue guidance to a range of $465 million to $485 million from the prior range of $500 million to $520 million due to the accounting-related adjustment discussed earlier. We are maintaining our adjusted EBITDA guidance in the range of $20 million to $30 million. With that, I'll turn the call back to the operator for questions.

Your first question comes from the line of Brad Thomas from KeyBanc.

It's Taylor Zick on for Brad this morning. Rob, maybe just to start, there's been a lot of moving pieces within the business as you add more floor space. But can you speak a little bit more to the demand trends you saw throughout the quarter? And then maybe related to that, you said you saw improved trends here in 2Q and you expect to step up further in the quarter. I guess, kind of what gives you confidence on that improvement?

Thank you, Taylor. The first quarter started off -- January was fairly healthy. February got a little bit of choppy and then March got a little bit better across all channels. I think as Todd highlighted, we were particularly encouraged by the e-commerce performance in March, where we got to flat, which hadn't happened in quite a long time.

And we do believe that's being driven by better media buying. I think the consumer still is pretty nervous right now, and we have seen trends get a little bit better, but definitely, the category is not robust.

Great. And then maybe just to -- you mentioned it in your prepared remarks, is just kind of on the input cost side. But I guess what are you seeing on that side of things and maybe transportation as well related to elevated oil prices, petrochemicals and some of the pressures within foam?

Yes. So clearly, with oil being what it is, we are seeing pressure across transportation as well as some of our input costs, including foam. To this point, we've been able to manage through those. They are headwinds. They're being roughly offset with savings that we're seeing on tariffs as we've gotten the lower rates coming off of the change in the IEEPA tariffs. And then in addition, just done a lot of good groundwork on where we're sourcing goods to make sure that we're optimized from a tariff and overall cost perspective. As we look at it, I yeah that headwind that we're seeing from oil and foam costs, we should be able to manage within our guidance, especially if the price of oil stays around that $100 a barrel range. So we're managing it as we go essentially.

Great. And then maybe just if I can squeeze one more in, Rob. You had a really nice -- another nice quarter here of high single-digit showroom comps. I guess, can you speak a little bit more to that and maybe what's driving those comps here even as you compare against it looks like a double-digit comp in the prior year?

Yes, Taylor, the showroom team has really dialed in on trying to explain the "why Purple?" and "which Purple"? Those 2 simple challenges, I think, are key to unlocking growth in this brand. We've got something that's different, but consumers still sometimes say, why should I pay for it? What's happening in showrooms is a very strong mix up in their volume.

In the prepared remarks, I told you that first quarter, the top category Rejuvenate was 56% of revenue in the stores, and that's what's driving the comp and making those stores profitable as well.

Great , Thank you so much.

Thanks Taylor.

Your next question comes from the line of Dan Silverstein from UBS.

And I'll just start by saying, Todd, great working with you and best of luck in your next role. Just to start, no problem. On the sales guidance, can you just clarify -- just to make sure, is anything changing from an underlying demand perspective or it's just a reporting adjustment? And then could you just comment on how the wholesale channel has trended on a comp basis the last few months, taking out some of the new door growth?

Yes. So I'll start with the revenue guidance and then turn it to Rob for wholesale performance. So in terms of the revenue guidance, it is purely just the reporting change.

We are still seeing good solid overall trends and still committed to that same level of overall volume activity. It's just making sure that we're reflecting how that accounting for some of that Mattress Firm activity is going to flow through the P&L. So no change to the underlying activity, though.

And Dan, on momentum, I think there's a couple of things we got to consider that our top 8 accounts, including Costco, Mattress Firm and then some of the other large regionals are performing up year-on-year on a comp basis and on a consumption basis also up. The Costco business and the Mattress Firm business both had year-end merchandising events that had them leave the year with relatively heavy inventory. So the consumption performance in Q1 was better than the shipment performance.

And that's particularly true of the Costco business because they load in that event as they set the floor in December. So it's mixed, but we're encouraged by the stronger accounts doing better, and we've got some smaller accounts that we got to figure out how to service better because that's where the business is struggling a bit.

And again, remember, on an unadjusted basis with this accounting change, wholesale had a very good fourth quarter, and they had an up 1% first quarter. Obviously, it's down, I think, 11% when you do the adjustment on the accounting. Does that make sense, Dan?

Very helpful color. And then just one more follow-up on the input costs. to Taylor's question. Are you thinking about any price adjustments needed as a result of some of the cost inflation? And what have you been -- what are you seeing from your peers on the pricing front? And just maybe the competitive opportunity there, if you guys have less foam in your products, maybe you don't need to raise prices as much or just anything on the competitive pricing environment?

Yes. I mean we do use less foam than others. We also use more mineral oil than others. So I'm not sure there's going to be any gain there. I think, first of all, we haven't seen any action by anybody else, and we will be more than likely a follower, not a leader. We are going to try to get at it, though, now through discount reduction.

And that's as much about cost and margin as it is about kind of getting the brand healthier. We are too dependent on discount and depth of discount. And we've got a whole team trying to figure out how to not damage volume, but reduce the discounts in the brand a couple of percentage points, which is real money.

Your next question comes from the line of Matt Koranda from ROTH Capital.

Best of luck, Todd, in the next role.

Just wanted to hear a little bit more about the trends you've seen quarter-to-date. Is the trend improvement you mentioned relative to the adjusted sales number you cited for the first quarter? Just wanted to hear a little bit more about whether we can expect positive sales heading into this quarter and into the back half, maybe seasonality as well for the year and how you see it?

Yes. The underlying volume is looking good for the quarter. Once we make the accounting adjustment, which should be in that range of, call it, $7 million to $9 million in the quarter. We still would expect sales to be up modestly. So that just points to the fact that we are seeing good underlying progress in the business.

Got it. And then maybe just on the e-com side of the business, getting back to flat is an interesting data point. And I think you cited better media buys helping with that. Maybe can you unpack what you're doing a little bit more that's helping out on the e-com side of the business and how sustainable that is?

Yes. I don't know if it's too early for -- to call 1 month of trend. I think we're changing the information we use to drive the daily media purchase, trying to be more responsive to what's working and what's not. It's a combination of a skill and a specific tool that we've got to build more robustly in the company. We've enrolled an outside agency that specializes in this and the early signals are good, but I'm not going to wave any success flag yet. We got to do it months in a row and put a couple of quarters up.

Okay. Got it. And then just maybe, Todd, how long does it take for the higher oil prices to flow through to cost of goods? I guess, assuming there's raw materials that enter inventory and cycle into cost of goods that takes at least a quarter or 2.

Does that mean sort of the highest margin pressure felt in the third quarter, back half of '26? Maybe just from a timing perspective, how should we be thinking about that?

Yes, it flows through pretty quickly. Really, our turns are generally less than a couple of months. And for the types of things, particularly if you're looking at foam that tend to come in at the end of the process, we've already seen some of that pressure flow through the P&L in Q1.

Like I said, we were able to offset that with savings on the tariff side of life, but it is flowing through currently, and we will see pressure from that in the course of the second quarter.

So as you look at Q2, Q3, Q4, from an overall trend of business perspective, we usually see revenue increasing proportionately across the quarters and are looking for similar this year. That means volume in Q2 will be lower than Q3 and Q4, and that oil pressure will probably place a little bit more pressure on gross margin in the coming quarter versus what we'll see later in the year.

[Operator Instructions]

Your next question comes from the line of Brian Nagel from Oppenheimer.

First off, Todd, best of luck in your next role. It's be nice working with you. The question I want to ask here, again, maybe some shorter-term questions to start. But with regard to the accounting change here in Q1, so just to make sure, is there going to be a similar type impact in subsequent quarters? Was it all in Q1?

No, it will be ongoing. And actually, the big impact is from the Royale production and that production being done by an affiliate of Mattress Firm. So as we grow that Royale volume going forward, if anything, the adjustment gets bigger as we get through the course of the year.

You can see that we adjusted the revenue guidance by about $35 million. The impact to Q1 was only $5 million. So that will kind of give you a picture of how much it does increase as we go later and later in the year.

Okay. And then just -- I think this was a prior question, but just to confirm, so that adjustment you made to your full year guidance is entirely associated with this accounting change.

100%.

Entirely associated, yes.

Okay. Got it. Second question I have on gross margin. So you saw the impact here in Q1 from the, I guess, the floor models. Can you size that more? I mean, I don't know if I caught this, but what would gross margin have been had you not had this impact?

Yes. So the impact from the floor models was about 200 basis points. We also had much lower production as we're managing our inventory levels, maybe a little more actively this quarter. So that lower absorption was, call it, something similar, close to 200 basis points of drag on the gross margin rate.

Okay. And then a similar question. So should we expect further impacts in subsequent quarters from this store model dynamic as well?

No. We really moved through that in the course of Q1. I would say similar for the absorption impact, we moved through that in Q1. So those are really timing issues.

Got it. And then I guess my bigger picture question, we're seeing the different sales channels start to take shape here. I guess how should we be thinking about -- you recognize you still -- there's still a number of challenges out there, right? But how should we be thinking about kind of what we're playing for in terms of a top line growth algo for the company? And then along those lines, you've seen some, I guess, success here with regard to showrooms. Are those showroom sales -- are they potentially cannibalizing other channels? Or do you think those are truly new to the business?

Yes. I mean, given -- Brian, I guess, theoretically could be, but given our relatively small share and the fact that I think the showroom count right now active is 57 or 58, that's not cannibalizing the business. In fact, we've seen data that e-commerce, wholesale partners and showrooms, top-performing DMAs are all similar. And one of the things we're doing is driving more spend into those ZIP codes because we see our business strength in pockets across channels and no negative correlation from showroom performance. Take a Greater L.A. market. I mean, the entire market, I think we have 8 showrooms in the greater area. That's not going to cannibalize. Mattress Firm alone probably has 50 stores, 60 stores in that same market, and so do all the rest of our competitors.

And then in terms of the growth algorithm, taking aside the accounting adjustment, -- our revenue guidance, excluding that had been and is $500 million to $520 million in revenue. That's growth of high single-digit to low double-digit percentage. And while that may vary in future years, we still are committed to that. We think that's good solid progress and appropriately conservative for the year.

And we have reached the end of our question-and-answer session. I will now turn the call back over to Robert DeMartini for closing remarks.

Thank you, operator. I just again want to thank Todd for his significant service to Purple and welcome Bob Lucian, and thank all of our employees for a hard-fought quarter. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to Purple Innovation Fourth Quarter Full Year 2025 Earnings. [Operator Instructions]

I would now like to turn the call over to Stacy Turnof, Investor Relations. Please go ahead.

Thank you for joining Purple Innovation's Fourth Quarter and Full Year 2025 Earnings Call. A copy of our earnings press release is available on the Investor Relations section of Purple's website at www.purple.com.

Before we begin, I'd like to remind you that certain statements made in this presentation are forward-looking statements. These statements reflect Purple Innovation's judgment and analysis as of today and are subject to a variety of risks and uncertainties that could cause actual results to differ materially from current expectations. You should not put undue reliance on these forward-looking statements. For more information, please refer to the risk factors outlined in our filings with the SEC.

Additionally, today's presentation will reference non-GAAP financial measures such as adjusted gross margin, adjusted operating expenses, adjusted EBITDA, adjusted net loss and adjusted net loss per share. A reconciliation of these measures to the most comparable GAAP measures can be found in the earnings release available on our website.

With that, I'll turn the call over to Rob DeMartini, Purple Innovation's Chief Executive Officer.

As we close out 2025, I'm proud of how far the business has come over the past year. While the broader market remains challenging, the progress we're making at Purple is increasingly evident in our results.

The fourth quarter marked an important inflection point for the company. Revenue increased approximately 9% year-over-year. We delivered gross profit expansion and profitability improved meaningfully across the business. In the quarter, we generated adjusted EBITDA of approximately $8.8 million and finished the year profitable. This performance was driven by the benefits of the strategic actions we've taken. Those actions include our cost initiatives that are now fully embedded in the business, including consolidating our manufacturing footprint as well as a full quarter of expanded Mattress Firm distribution and a significant expansion of our Costco program.

Looking at the full year, 2025 was a period where the business became meaningfully stronger. We continue to build on our path to premium sleep strategy and delivered positive adjusted EBITDA for the year, finishing within the guidance range we established at the beginning of 2025.

Importantly, we achieved profitability levels that we haven't seen since 2021. That progress was driven by the execution and by the changes we put in place, not by a recovery in the broader market, which speaks to the durability of the model we've been building.

Our focus throughout the year was not on short-term fixes, but on creating a business that can perform more consistently. Taken together, this represents more than a strong finish to the year. It marks a clear shift from defense to offense. Growth, margin expansion and profitability are showing up in the numbers and that's in a market which is down low single digits. The direction is clear, the momentum is real, and we're entering 2026 with a playbook designed to scale profitably as demand continues to improve.

We've made meaningful progress across each of our sales channels in 2025. And in the fourth quarter, 2 of our 3 channels delivered positive growth for the second consecutive quarter. Comparable sales in our showrooms increased 8.8% in the quarter and showrooms continued to grow in profitability for the full year.

Sales execution improved, the updated selling model gained traction and Rejuvenate 2.0 represented over 50% of showroom mattress revenue during the quarter with more than 80% of showrooms or wall profitable for the full year.

Wholesale was a key driver in 2025 with a robust 39.8% growth in the fourth quarter. E-commerce performance was mixed during the year and declined in the fourth quarter though we did see pockets of strength around Black Friday and Cyber Monday. At the same time, we saw solid marketplace performance, particularly on Amazon and meaningful improvements to the website experience tied to our less pain, better sleep positioning.

Stepping back, the way we're thinking about the business today is fundamentally different than a year ago. Last year was about reshaping the business for a tougher market, rightsizing our cost structure, strengthening the foundation and restoring profitability.

Today, we're focused on growth. Going forward, our focus is centered on 3 priorities: deepening our understanding of the consumer, delivering better sleep through product experience and expanded distribution and executing with financial discipline across the business. This approach builds on what's already working and reflects how we're running our business.

With that framing, let me walk you through our progress against these priorities and what they mean for the business going forward. Number one, knowing our consumer. Over the past year, we've sharpened our focus on understanding who our consumers are, what matters most to them and how they make their purchase decisions across the channels.

Our work is shaping how we communicate, shifting us away from promotionally led messaging towards clear benefit-driven storytelling, focusing on GelFlex Grid technology that helps consumers understand how Purple delivers better sleep. Our less pain, better fleet positioning continues to resonate, providing a consistent consumer-led message that translates across e-commerce, retail and wholesale channels. Importantly, we're focused on reaching our consumers with the right message in the right place at the right point in their decision journey.

We're seeing early signs of improved brand momentum with increased awareness, beginning to translate into brand consideration. As a result, we're improving our clarity across touch points, strengthening engagement and supporting higher quality conversion as consumers better understand the value of our product.

In e-commerce, we're encouraged by the progress we're making. As part of better meeting consumers where they're shopping, our expanded presence on Amazon is gaining traction. Improvements in availability, delivery speed and conversion are strengthening the consumer experience and broadening our reach particularly among new-to-brand consumers. This expanded assortment is driving a healthy lift in Amazon sales, especially in pillow and seat cushions and introduces new consumers to our technology.

We're also seeing this consumer-focused approach to resonate through our partnerships. Our participation in Mattress Firm's Sleep Easy marketing campaign drove sales conversion and improved aided awareness scores. At the heart of better sleep is better product. From there, we focus on how we bring innovation to life through the consumer experience and expanded distribution.

Innovation remains at the core of Purple's differentiation and our Rejuvenate 2.0 collection continues to validate that approach. Performance exceeded our expectations in 2025 with strong traction across both showrooms and wholesale as retail partners expanded Rejuvenate 2.0 placement on their floors.

Through our direct channels, Rejuvenate 2.0 is performing well at an average selling price of almost $5,800, demonstrating our ability to drive demand at meaningfully higher price points and reinforcing the value consumers place on better sleep.

We also completed development work on Purple Royal, a new premium offering developed in close partnership with Mattress Firm. This is an important product for us and a meaningful step forward in our premium strategy. Purple Royal is complementary to our Rejuvenate 2.0 collection with similar price points across the curated floor model lineup. The launch is on track with initial floor models arriving now.

The Purple Royal collection was originally planned for over 2,800 slots bringing us to a total of 12,000 slots across Mattress Firm's 2,200 stores. Encouragingly, the quality and design of the final product has exceeded expectations, and as a result, Mattress Firm is adding incremental slots as the product launches.

Beyond the product itself, we continue to focus on delivering a differentiated end-to-end consumer experience, anchored by compelling in-store presentations across our own stores and wholesale partners. This includes elevating how we educate our consumers around pain relief and the role of GelFlex Grid technology, which we are seeing drive strong engagement when brought to life through in-store demonstrations and digital content.

We're also continuing to strengthen white glove delivery services to ensure that Purple shows up consistently incredibly whenever the consumer chooses to engage. This focus is strengthening the brand and improving conversion by reinforcing the value of our technology across channels.

Part of delivering better sleep is expanding our distribution presence, meeting more consumers where they shop. The premium innovation is translating directly into expanded distribution. With Purple Royal now launching across Mattress Firm, we've expanded our footprint and deepened our presence across their network. Additionally, we're seeing strong performance with Costco, where our program continues to resonate with members and provide an important opportunity to introduce Purple to new customers at scale.

With both Mattress Firm and Costco, our initial launches significantly exceeded expectations driving immediate demand for expanded placement. In Costco's case, early performance was exceptional, supported by the introduction of unrolled beds on floor displays, which allowed members to see and feel our differentiated product. The strength of those results led Costco to quickly expand the program in the fourth quarter to approximately 450 clubs bringing us to nearly nationwide distribution.

We're also making progress in new channels, including Walmart and Sam's Club, which are helping us reach new consumers, diversify demand and drive incremental volume. Importantly, expanding into these large far-reaching retail platforms strengthens distribution for our pillar portfolio and positions us to drive meaningful incremental pillow sales through highly scaled high-traffic partners.

And in owned retail, we continue to focus on showroom profitability. In 2025, we closed 4 underperforming stores as part of optimizing the fleet. And looking forward to 2026, we plan to open 7 new stores. Our showrooms continue to be an important part of the model that showcases our GelFlex Grid technology and premium positioning. Our showrooms drive traffic to wholesale locations, helping convert interest into purchases.

Finally, let me talk about how we're executing with financial discipline across the business. Last year, our focus was on rightsizing the business, so we could operate profitably at current scale. That work is now behind us. And importantly, the actions we took were structural, not temporary. We're increasingly focused on driving growth from a much stronger foundation.

Gross margin improvement remains a key focus, and we continue to see the benefits of the actions we've taken to simplify the business and improve efficiency across sourcing, operations, fulfillment and product quality. Mix has become an increasingly important tailwind led by the growth of Rejuvenate 2.0. The shift towards higher ticket products, combined with strong attachment rates for adjustable smart bases and pillows, is driving higher average transaction values and incremental profit dollars. As a result, the operating discipline we put in place over the past year is now clearly showing up in our margins and profitability. We continue to view 40% gross margins at a sustainable level and we expect further improvement as we move into 2026 as efficiencies continue to flow through the business. Todd will provide more detail on specific margin drivers and cost actions in his remarks.

Turning to our guidance. As we look ahead to 2026, we're entering the year with improved stability and a structurally stronger operating model. For the full year, we expect revenue in the range of $500 million to $520 million and adjusted EBITDA of $20 million to $30 million. This outlook reflects continued momentum in our premium product portfolio, expanded wholesale distribution and the operating leverage in the business as volume grows. Importantly, this guidance is driven by execution, not by a recovery in the broader market. It reflects the progress we've made across product, distribution and operations, with gross margin sustainably above 40% and disciplined expense management we believe we're well positioned to deliver meaningful earnings growth in 2026.

Before I close, I'd like to briefly readdress the Board's ongoing review of strategic alternatives. The process remains ongoing, and we've engaged with multiple parties across a broad range of opportunities to maximize shareholder value, including a potential merger, sale or other strategic or financial transaction. We'll continue to evaluate all options and will provide updates as appropriate. As a reminder, we will not be commenting further or taking questions on this topic during today's Q&A.

With that, I'll turn the call over to Todd.

Thank you, Rob. I'll begin by walking through our fourth quarter financial performance and then the year ended December 31, 2025.

Net revenue for the fourth quarter was $140.7 million, representing growth of 9.1% year-over-year. The increase was driven primarily by wholesale, reflecting a full quarter of expanded Mattress Firm placements and continued momentum with Costco, partially offset by a decline in e-commerce.

By channel, direct-to-consumer net revenue for the quarter was $71.9 million, down 9.9% compared to last year. Within DTC, showroom revenue increased approximately 4.5%, up for the second consecutive quarter and comparable sales were up 8.8%, reflecting continued strength in Rejuvenate 2.0. E-commerce revenue continued to be down with a decline of 15.3%. Wholesale revenue increased approximately 39.8%, driven by our expansion with Mattress Firm and Costco.

Gross margin for the quarter was approximately 41.9%, remaining well above our 40% quarterly margin target and down 100 basis points from last year. We're pleased with the durability of our gross margin, particularly given the strength of last year's results when gross margin rose 970 basis points driven by sourcing initiatives and the profitable liquidation of inventories.

Viewed over a 2-year period, gross margin increased by nearly 870 basis points, reflecting durable improvements to the business. The margin continues to be driven by direct material savings, plant efficiencies, restructuring benefits and volume leverage. On an adjusted reported basis, gross margins for the quarter, excluding restructuring costs, was 41.9%, down 300 basis points from last year.

Operating expenses for the quarter were $61.2 million, down 2.9% versus $63 million last year. The decrease reflects the benefits from restructuring activities and other cost-savings initiatives.

Our fourth quarter adjusted loss per share was $0.02 compared to an adjusted loss per share of $0.11 last year. Adjusted EBITDA in the fourth quarter was $8.8 million, a notable improvement over the $2.9 million EBITDA last year.

Turning now to full year results. Net revenue for the full year 2025 was $468.7 million, reflecting a 3.9% decline versus the prior year. By channel, direct-to-consumer net revenue for the year was $261.3 million, down 7.9% compared to last year. For the full year, showrooms generated strength with sales up 1.5% versus last year to $78.5 million and comparable revenue was up 6.6%. We delivered net revenue of up 4% or more 3 of the past 4 quarters with only the second quarter being impacted by the timing related to the Rejuvenate 2.0 launch.

Wholesale has been sequentially improving over the last 4 quarters, up 1.6% versus last year to $207.4 million, benefiting from expanded partnerships and nontraditional revenue streams, while e-commerce remained soft throughout the year. Full year gross margin increased 310 basis points to 40.2% versus last year, reflecting the impact of restructuring, sourcing initiatives and manufacturing efficiencies. On an adjusted basis, full year gross margin, excluding restructuring costs, improved slightly to approximately 40.4%, up approximately 10 basis points year-over-year.

Our cost initiatives delivered $25 million in annual savings in 2025, with $25 million to $30 million of sustainable savings expected going forward, giving us greater flexibility to reinvest in marketing and innovation while continuing to expand margins. Just as importantly, it reflects a business that is operating with greater discipline and a structurally stronger cost base. Full year operating expenses declined by 15.3% to $231.6 million, driven by restructuring savings and productivity initiatives.

Adjusted net loss was $34.3 million versus an adjusted net loss of $55.1 million in the prior year. Adjusted EBITDA for the full year was $1.9 million, representing a significant improvement versus the adjusted EBITDA loss of $20.8 million last year and adjusted net loss per share in 2025 was $0.32 compared to an adjusted net loss per share of $0.51 in the full year of 2024.

Now turning to the balance sheet. We ended the quarter with cash and cash equipment of $24.3 million versus $29 million on December 31, 2024. Net inventories on December 31, 2025, were $59.7 million, up 5% compared to December 31, 2024. We're pleased to exit the quarter with cash over $24 million, and we believe we are well positioned from a liquidity standpoint. We also extended our debt maturities from December 31, 2026 to April 30, 2027, enhancing our financial flexibility and reflecting continued strong support and confidence from our lending partners.

Now let's turn to the outlook. Given that we are through most of the quarter, we will be providing guidance for the first quarter. We plan total revenue to be in the range of $100 million to $105 million and adjusted EBITDA to be in the range of a loss of $7 million to a loss of $4 million. As Rob walked you through earlier, for the year, we expect revenue in the range of $500 million to $520 million and adjusted EBITDA of $20 million to $30 million.

We plan for revenue to continue to be driven by strength in Rejuvenate 2.0 as well as our expanded distribution with Mattress Firm and Costco. We also anticipate continued improvement in EBITDA, driven by further operational efficiencies and ongoing restructuring actions benefiting both gross margin and operating expenses. These initiatives are expected to support improved profitability and cash generation, reflecting the full impact of our cost actions, product innovation and expanded distribution.

Thank you, Todd. This morning, we filed our annual report on Form 10-K for the fiscal year ended 2025. As disclosed in the filing, our independent auditor has included a going concern qualification. While this notification is not necessarily a surprise, given the liquidity challenges of the past year and our historical cash burn, we want to provide clear context why the decisive, transformative actions we've already taken are expected to continue stabilizing our financial position and driving the business forward.

The fruits of our labors are already evident in our recently improved operating and financial performance. Following a rigorous period of restructuring, we achieved profitability levels in the second half of 2025 that we haven't seen since 2021. This momentum is driven by 3 core strategic pillars: supply chain reorganization. We've optimized our footprint to ensure a more agile, cost effective flow of goods, disciplined cost management. Structural savings initiatives implemented in 2025 have led to significant margin expansion and profitability at revenue targets meaningfully lower than past years.

Channel momentum, we're seeing robust volume growth across both our wholesale and showroom channels as our path to premium sleep strategy takes hold. We entered 2026 on much firmer footing. We expect to conclude Q1 '26, historically our seasonally weakest quarter with neutral cash burn. Furthermore, we're grateful for the strong continued support of our lenders. Our recent agreement to extend debt maturities to April 2027, provides us with the runway and the financial flexibility to execute our long-term vision. We believe these factors, combined with our improved liquidity profile, directly addressed the concerns raised in our 10-K and position us for a year of consistent growth and profitability, as evidenced by our 2026 guidance.

We appreciate the patience and the confidence of our shareholders. Like you, we are disappointed by the current stock price. Our team remains focused on executing our clear plan to build on recent business momentum and deliver sustainable shareholder value on your behalf.

With that, operator, we can turn it over for questions.

[Operator Instructions] Your first question comes from the line of Brad Thomas with KeyBanc Capital Markets.

Rob, I wanted to start off asking about recent trends. There's no question that the fourth quarter showed some nice momentum and your outlook for this full year is very encouraging. It does look like maybe the first quarter had maybe a step back in the pace of the business. Can you just talk a little bit more about what you've been seeing here?

Yes, Brad, thank you for the question. And I think there's a couple of things going on. We had a very strong fourth quarter. And the way the fourth quarter shipped, it did impact demand in January as that sell-through and consumption happened. Particularly, we've got the club customer that had a a significant buy-in in December that was part of loading the floor, and so there wasn't much follow-up on that.

As Todd said, we think we'll be between $100 million and $105 million. And I think the momentum also includes all those floor samples at Mattress Firm going out, and that obviously has a short-term push down on revenue as they sell in at floor sample prices. So we're encouraged. Q1 has always been our weakest quarter. It's not a strong quarter, but we think the momentum in the business dictates the strong rest of the year that we've predicted.

And just to be clear, Rob, it sounds like aside from the January, you've seen an improvement in trends of late. Is that fair to assume?

Yes. I mean Q1 is not robust by any means, but we've seen us kind of lapping last year right at about equal to comp levels. And obviously, we're close to ending March, and we expect kind of the same performance in March.

Great. And then just following up about the outlook for the year, we can obviously back into it a bit through your guidance. But the question is really how to think about the flow-through margin? You've done a great job of improving the cost structure of the business as you start to drive this volume, how could we think about it flowing through to the bottom line?

Yes, flow-through actually should be quite good for us. If you look at the guidance, we're guiding to revenue that's $30 million to $50 million better than last year. And looking at EBITDA, that's going to be around $20 million to $30 million better. That's a pretty healthy flow. I think on a normal basis, our sales should be generating about a 30% flow through. This year, it will be a lit bit more because we're also seeing margin expansion and a lot of cost control that is helping us along the way.

Great. And if I could squeeze in just one more regarding the macro environment as it relates to raw materials, can you just remind us the degree that you have exposure to petrochemicals or other inputs that may be at risk of some price pressure here? And what are you hearing from suppliers?

Yes. So mixed bag, we obviously are not importing oil or anything like that directly, but we do have products that have a petroleum based and you can make foam, some of, are, to a lesser degree, the mineral oil that's going into the gel. Overall, we've looked at it. And if the price of oil stays around that $100 a barrel range. Effectively, the savings we're going to get this year off of tariffs from being able to get, well, lower rates on tariffs, but also tariff mitigation would roughly offset the exposure from any oil. We continue to monitor it. We're hearing noises about price increases, but it's just very, very early on at this point.

Your next question comes from the line of Matt Koranda with Roth Capital.

I wanted to hear a little bit more about how you're thinking about the seasonality of the year just given the visibility you have in the product launches with your wholesale partners. So maybe just a little bit more around the ramp that's implied in guidance for the remainder of 2016?

Yes. So you should see revenue growing -- sorry, Rob.

You should see revenue growing pretty consistently across the course of the year. Typically, Q2 would be relatively flat to Q1. But this year, we have the Purple Royal launch at Mattress Firm that literally just got out on floors last week officially. So that will help out the Q2 pace and then we have a natural build that we see virtually every year going into Q3 and Q4. So it really should build pretty consistently as we go across the course of the year. Okay. And then maybe just wanted to hear you unpack the drivers of the flow-through you mentioned. There's likely some more restructuring actions. Does that benefit operating expenses or the gross margin benefits embedded in the actions that you're taking are the actions already taken? Or is this incremental stuff that still needs to happen during the second quarter to hit the flow-through sort of that's implied in the 26 EBITDA guide?

Yes. So the actions that I kind of referenced were actions that have already been taken. At this point, we don't have plans for additional actions that are needed right now. We feel like we're positioned very well for the full year. But we did take a little bit of an action in January that will continue to benefit the operating expense line. And then from a gross margin perspective, we actually just have a very strong team on the operations side of the world that is always looking for room for improvement from an efficiency perspective, overall scrap and yield RECONNECT looking at sourcing opportunities, there's a number of opportunities that should play out across the course of the year to help that flow.

Your next question comes from the line of Dan Silverstein with UBS.

Maybe just to start looking at the sales guidance, up $30 million to $50 million this year. I think the Mattress Firm expansion was supposed to drive around $70 million of additional sales and sounds like it's doing really well right off the gate. If this is the case, what other areas might be driving a bit of a drag to.

Yes. First of all, I think that the $70 million, we've got to grow into that number. It's probably somewhere between $50 million and $70 and obviously, it's just hitting the floor right now. But we've got -- we expect growth from Costco as well. We expect growth from showrooms modest, and then we have assumed a flat e-commerce business in the roll-up -- we want to do better than that. But given the performance of the last few years, we've tried to show some conservatism there. Super helpful. And that was kind of my second question. why is the Amazon business doing well relative to your own e-com channel? How can you capitalize on this? And how can you reinvigorate your own e-com channel looking ahead?

Yes, Dan, I'll separate the 2 questions because they really are different drivers. I mean our own e-commerce business, we've got to figure out a way, as we've expanded our availability across both our own showrooms and partner showrooms, the specialness of reaching our product online has been challenged, and the product assortment while proving to be a benefit in a physical environment is either a neutral or a negative in a digital environment, and we're still trying to figure that out. So that's what's going on with e-com on Amazon, it's quite a different situation where because of the cube of mattresses, we have a very underdeveloped shape of business at Amazon. So the progress you're seeing that we're starting to figure out. So it really is 2 different drivers across those otherwise seemingly consistent channels.

[Operator Instructions] Your next question comes from the line of Robert Griffin with Raymond James.

This is Alessandra Jimenez on for Bobby Griffin. First, I wanted to follow up on current demand trends. What are you seeing from growth in your retail partners outside of Mattress Firm and the incremental Costco program?

Alessandro, on our own business, you're asking about the overall market.

Yes.

Yes, it's a mixed bag. We've got some customers where we're seeing nice growth, and we've got others where we've got to figure out why we're not seeing that. So it is a bit mixed across wholesale. I think if you backed out the 2 customers that we spoke about in our script, we're probably seeing a net down about 5% -- and I think that's about consistent with the market, but it is definitely mixed in the performance.

Okay. That's helpful. And then what are you expecting from a cash flow perspective for 2026 on the improved EBITDA profitability? Do you anticipate positive free cash flow for the year?

Yes, we would expect positive free cash flow for the year. If Apologies, I was getting a positive free cash flow for the year. And as we look at it, we'll have CapEx that we'll be reinvesting in and a $20 million to $30 million of adjusted EBITDA, that would get us modestly positive and coming off of the Q1 where we're ending Q1 with our cash actually equal to where we ended Q4. That's the first time that we've been in that range in over 7 years. So we're off to a good start for the year for sure.

That's really helpful. And if I can just sneak one more in. I wanted to revisit the channel. It's encouraging to see that strong comp growth. Can you speak to what you're seeing from a demand perspective? And what's kind of accelerating there? And then how do you think about the roughly 20% of locations that are not yet full all profitable?

Yes, let me try to tackle that. So Scott Kirby, who runs that channel has been doing an excellent job in establishing a selling system and what's driving the results is positive mix. RECONNECT As I mentioned in the script, our mattress percent to total of the premium line is now over 50% of dollar revenue. And so that obviously helps the stores be much more profitable. of the 20% of stores, that's about 9 stores that are not four-wall profitable. We think at least 5 of those can get there with continued development and maybe 3 to 4 of them we really have to look at and figure out if we have -- are we in the right location with the right rent structure, but it's been mix, tight labor discipline and really looking at the cost structure of those stores that have led to this significant improvement over the last 2 years.

Your next question comes from the line of Brian Nagel with Oppenheimer.

So I have a couple of questions. First off, just with regard to the newer products, the more innovative products, is that RECONNECT is that rollout now complete? Or should we expect further rollout here? I guess my follow-up question, I guess most of the tote maybe just outline kind of the capital needs. From an operational standpoint, the capital needs of the business.

All right, Brian, let me take the first one, and then I'll let Todd answer the second one. Yes, that rollout is physically completed. We completed our Rejuvenate rollout probably in the middle of fourth quarter and then started the Royal, which is a curated version of similar price points. The official launch at Mattress Firm was March 20, and -- it's on all the slots that it was aimed for at this point. But we still have significant opportunity to develop that line. I spoke about the percent of total in showrooms. It's much, much lower in wholesale and in e-commerce. And that's a business development opportunity. So we think we can continue to grow that as a percent of total, but the physical expansion is completed, and we're now looking to a very full innovation pipeline for other products starting in early.

And from a capital needs perspective, I should have said before, our target for the year is $10 million to $12 million capital that's just up modestly from the $8 million that we had in 2025. So the base CapEx is going to always be kind of the normal maintenance CapEx that we've had for the past several years, particularly in our operations. actions CapEx this year as we innovate for new products going forward. And then the -- probably the big chunks that are incremental versus last year a number of things that just help with the overall products that we think help sell the products through. And then Rob mentioned, we have 5 new stores that we're planning for this coming year, there's a modest amount of CapEx that goes for those as well.

I will turn the call back over to Rob DeMartini for closing remarks.

I just want to thank all of our shareholders and investors and lenders for the support we've gotten and I want to thank the Purple associates for the hard work they've put in on the business. I believe from the Q3 and Q4 results, you can see our turnaround is taking hold, and I want to say thank you to everybody for that.

Thank you, operator.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Good day, and welcome, everyone, to the Purple Innovation Third Quarter Earnings 2025. Today's conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Stacy Turnof. Please go ahead.

Thank you for joining Purple Innovation's Third Quarter 2025 Earnings Call. A copy of our earnings press release is available on the Investor Relations section of Purple's website at www.purple.com.

Before we begin, I'd like to remind you that certain statements made in this presentation are forward-looking statements. These statements reflect Purple Innovation's judgment and analysis as of today and are subject to a variety of risks and uncertainties that could cause actual results to differ materially from current expectations. You should not place undue reliance on these forward-looking statements. For more information, please refer to the risk factors outlined in our filings with the SEC. Additionally, today's presentation will reference non-GAAP financial measures such as adjusted gross margin, adjusted operating expenses, adjusted EBITDA, adjusted net loss, and adjusted net loss per share. A reconciliation of these measures to their most comparable GAAP measures can be found in our earnings release available on our website.

With that, I'll turn the call over to Rob DeMartini, Purple Innovation's Chief Executive Officer.

Thank you, Stacy. Good afternoon, everyone, and thank you for joining us. The third quarter unfolded largely as we anticipated, reflecting the continued execution of our strategic priorities. We delivered revenue of $118.8 million, up slightly compared to last year, marking an important inflection point following consecutive periods of year-over-year declines. We also achieved positive adjusted EBITDA, consistent with what we anticipated. Our results demonstrate ongoing progress towards strengthening the business and building a foundation for sustainable growth. As we move into the final months of the year, we're encouraged by the early traction we are seeing across our core initiatives and remain focused on driving improved operational performance and long-term profitability.

Gross margin improved nearly 700 basis points sequentially to approximately 43%, even with tariff-related headwinds. Importantly, we remain on track to deliver positive adjusted EBITDA for the year. These results reflect solid execution across each of our strategic priorities. Our Mattress Firm rollout is progressing well with Purple products now being represented in nearly 9,200 slots today, keeping us on pace for 12,000 slots in 2026. Our Rejuvenate mattress collection, Rejuvenate 2.0, also continues to outperform our initial expectations. As we continue to catch up with second quarter backlog, sell-through remained strong and drove 6.5% showroom sales gains, marking an acceleration from the prior quarter. Meanwhile, wholesale revenue grew 8% during the quarter, supported by the ongoing expansion of our Mattress Firm partnership.

E-commerce was down 10%, but showed early signs of improvement following our site refresh and growing traction with Amazon. It's been just over a year since we initiated the restructuring program in August of 2024, and it's important to reflect on how far we've come. At this time last year, we made the difficult but necessary decisions to consolidate our manufacturing footprint, to streamline our corporate structure and to realign our distribution network. These changes were not easy, but they were essential to strengthen the durability of our business for the future. Importantly, we accomplished this transformation while maintaining uninterrupted customer service levels. The early results are clear. We have reduced our fixed costs and expect to deliver $25 million to $30 million in savings annually. We're on track to achieve positive adjusted EBITDA and our gross margins have improved from the low 30s to more than 40% today. We're improving our operating efficiency and creating a business model that can deliver more consistent performance even during difficult market conditions.

As we look forward, this leaner and more agile Purple is allowing us to redirect resources back into what matters most, innovation, marketing and our strategic partnerships. That's what's fueling the Rejuvenate 2.0 and the expansion with Mattress Firm, Costco, and others, and we see new opportunities to continue expanding our presence with new retail partners. Having made significant progress in stabilizing the business and improving the underlying profitability, we're increasingly focused on positioning our business for future growth. With a strong foundation firmly in place, our next chapter is centered on accelerating innovation and marketing investments. While there's still work to do, I am confident that Purple is on the right path.

Now let me turn to our three strategic pillars and update you on our progress during the third quarter. Innovation remains at the heart of Purple's competitive advantage and continues to define our leadership in comfort technology. In the second quarter, we launched Rejuvenate 2.0, one of the most successful product introductions in our history, featuring our new DreamLayer gel grid technology. In our showrooms, Rejuvenate 2.0 has sold more than twice the number of units, doubling net revenue compared to Rejuvenate 1.0. Through our direct channels, we've sold more than 3,000 units at an average sales price of approximately $5,800, underscoring the strength of our premium positioning. We're also encouraged by the early performance of our GridC Pillow, which is outperforming expectations and demonstrates the versatility of our proprietary grid technology across new comfort categories. Our focus on differentiation continues to resonate with our customers across each of our channels and reinforces Purple's position as the leader in premium comfort.

Starting with our showrooms. We delivered strong performance in the quarter. Net revenue grew 6.5% to $22 million, reflecting the strength of our premium positioning even in a softer traffic environment. Our showrooms remain a key driver of brand experience and sales conversion across all channels. Our new selling model has empowered our teams to more effectively communicate Purple's technology and value proposition, driving 12% comparable sales growth in the quarter. These results demonstrate the value of the showroom as both a brand experience and a growth engine. Showroom four-wall profitability reached an all-time high with record mattress order values of about $4,500, further validating the success of our path to premium sleep strategy.

Momentum within our luxury mattress assortment also remains strong. Rejuvenate mattress sales nearly doubled year-over-year and 76% of showrooms are now profitable year-to-date versus 56% last year. E-commerce business is central to the shopping journey, and our website is often the first stop. It plays a critical role in building consumer confidence and guiding them towards the right products. While revenue in the channel remains pressured, we're encouraged by the recent signs of improvement.

During the quarter, we enhanced our digital experience to reinforce Purple's premium positioning and highlight the less paying, better sleep benefits of our GelFlex and DreamLayer technologies. Our refreshed website with simplified navigation and richer video content has helped shift demand towards higher-priced mattresses. We also saw promising results in our Amazon channel as a growing share of sales moved to fulfilled by Amazon, improving both conversion and delivery speed.

While there's still work ahead, we're pleased with the sequential improvement and positive consumer response to these initiatives. The wholesale channel grew 8%, driven by the rollout of Rejuvenate 2.0, and our expanding partnership with Mattress Firm. Momentum accelerated through the quarter and trends we are seeing early in Q4 point to sustained growth with our key wholesale partners. Today, Purple products are now in Mattress Firm's full store network, representing approximately 9,200 slots today, and we are on pace to reach 12,000 slots by March of '26. This expansion represents roughly $20 million in incremental revenue this year, and we anticipate approximately $70 million next year. We're working hard to unlock benefits for both partners through continued collaboration and execution.

Beyond Mattress Firm, we're expanding with other partners as well. We're testing our entry into the Florida market with Mattress Warehouse, building on our existing 140-store footprint and broadening our reach through partners like Costco and QVC. Our Costco partnership is performing exceptionally well. We are currently in 54 Northwest stores and later this year, we'll participate in Costco's Q4 Furniture event in a minimum of 450 clubs, nearly double last year's footprint. And on October 2, we tested our first Purple Mattress program on QVC, offering another opportunity to share our technology with a wider audience in a live interactive format. For the new Rejuvenate mattresses, our non-Mattress Firm slot placement have now increased by 68% compared to last year, also highlighting Purple's growing relevance across the channel.

Finally, turning to marketing. Our Less Pain Better Sleep campaign launched in the third quarter continues to perform well and has been expanded across digital and social media platforms. The message is simple but powerful, and it focuses on real sleep benefits and connects directly to our GelFlex Grid technology story. We also leaned into our expanded Mattress Firm partnership through joint campaigns, including their recent Sleep Easy promotion, which exceeded expectations and contributed to a strong Labor Day sales period. Across every touch point from our showrooms to our website, to our retail partners, we're driving consistency and message, look and feel. Our differentiation has always been rooted in innovation, but how we communicate it is what turns that innovation into brand preference. We're confident this focus on differentiation will drive stronger engagement, higher conversion, and sustained growth across our channels in the quarters ahead.

Turning to our third strategic pillar, prioritizing gross margins. Our margin discipline remains firmly intact. Gross margins recovered to approximately 43% in the third quarter from 36% in the second quarter. This improvement reflects direct material cost savings, the completion of the restructuring plan, and continued progress in warranty and scrap reduction initiatives. Tariffs only impacted us by roughly $2 million this quarter as mitigation efforts continue to pay off. While April and May were challenging as the new rates took effect, our sourcing shifts and pricing actions have meaningfully reduced the overall impact compared to initial expectations. Looking ahead, we expect fourth quarter gross margins will remain at roughly 40%, albeit lower than the strong third quarter result, and we continue to be confident that we'll end the year above the 40% level. This progress highlights the operational discipline we've built into the business and the structural improvements that position Purple for sustained profitable growth moving forward, supported by our full Mattress Firm rollout and the sustained momentum of Rejuvenate 2.0 and anticipated holiday momentum.

We are reiterating our full year 2025 guidance, expecting revenue in the range of $465 million to $485 million and adjusted EBITDA between breakeven and $10 million positive. Looking forward into 2026, we see a clear path to positive cash generation. Our capital priorities will focus on reinvesting in showroom expansion and innovation while maintaining flexibility to reduce debt as appropriate.

Before I close, I'd like to briefly address the Board's review of strategic alternatives. This process remains ongoing. We have engaged with multiple parties about a broad range of opportunities to maximize shareholder value, including, but not limited to a merger, a sale or other strategic or financial transaction. We will continue to evaluate a range of options and provide further information as appropriate. We will not be commenting further or taking questions on this topic during the Q&A portion of today's call.

Now I'd like to turn it over to CFO, Todd Vogensen.

Thank you, Rob, and good afternoon, everyone. As Rob discussed earlier, we're pleased with our performance this quarter, which demonstrated our continued ability to deliver against our strategic initiatives. I'll now walk you through the financial metrics for the third quarter, starting with the top line.

Net revenue for the 3 months ended September 30, 2025, was $118.8 million, up slightly versus $118.6 million last year, driven by the timing of Rejuvenate 2.0 shipments and the expansion of our Mattress Firm relationship. We saw strength in both showroom and wholesale that was partially offset by softness in e-commerce. By channel, direct-to-consumer net revenue for the quarter was $67.2 million, down 5.1% versus last year. Within DTC, net revenue for showrooms in the third quarter was $22 million, up 6.5% compared to last year despite 4 fewer stores opened this year.

Last quarter, we experienced timing issues related to Rejuvenate 2.0 launch as demand for Rejuvenate 2.0 has significantly outstripped our ability to supply customers. Those issues have since been resolved. Our delivery schedule has normalized, and we've seen continued momentum in showroom sales trends. E-commerce continued to see softness and was down 9.8% during the third quarter, but was a sequential improvement from the prior quarter. We also experienced a notable increase in our wholesale segment, where net revenue of $51.5 million was up 7.9% versus last year, driven by strength in our Rejuvenate 2.0 launch and our expansion with Mattress Firm. As we look toward the fourth quarter, we're encouraged that the sales trends should continue to improve even further. Gross profit for the third quarter increased to $50.9 million or 42.8%, compared to $35.2 million or 29.7% in the prior year period.

Adjusted gross margin, which excludes restructuring and related charges, expanded to 42.8% in the quarter compared to 40.5% last year. With the restructuring now complete, we also benefited as we delivered greater manufacturing efficiencies and direct material cost savings in addition to improved warranty trends. While we expect some of those short-term benefits to moderate as we move into the fourth quarter over time, we do expect to continue realizing sustainable structural improvements as production continues to scale at our Georgia facility, and we also see greater manufacturing efficiencies and direct material cost savings opportunities in the future.

Now turning to operating expenses. Operating expenses were $63 million, down 23.2% versus $82 million last year. The improvement was largely driven by a reduction in restructuring and impairment costs in the current year in addition to benefits from the restructuring and other cost savings initiatives that we've completed over the past few quarters. Excluding restructuring and impairment-related charges, adjusted operating expenses were $57.7 million, down 8.6% versus last year. Our adjusted net loss for the third quarter was $8.6 million compared to an adjusted net loss of $13.8 million in the prior year. And third quarter adjusted loss per share was $0.08 compared to an adjusted loss per share of $0.13 last year. Adjusted EBITDA for the third quarter was a gain of $200,000, an improvement from the loss of $6.4 million last year, driven primarily by our gross margin expansion and disciplined cost management.

Now turning to the balance sheet. We ended September with cash and cash equivalents of $32.4 million compared with $29 million on December 31, 2024. Net inventories on September 30, 2025, were $65.8 million, up 9.8% compared to September 30, 2024, and up 15.7% compared to December 31, 2024. We were pleased to exit the quarter with cash over $30 million again as we move into the fourth quarter, which is traditionally a period of cash generation. We believe that we're well positioned from a liquidity perspective to drive expected growth from our Rejuvenate 2.0 launch and the Mattress Firm expansion.

Finally, guidance. As Rob discussed earlier, we are reiterating our full year outlook. We continue to expect full year revenue in the range of $465 million to $485 million and adjusted EBITDA between breakeven and $10 million. As we move into Q4, we anticipate continued top line growth driven by the seasonal lift in direct-to-consumer sales during the Black Friday, Cyber Monday holiday, an expansion of business at Costco, as Rob described earlier, our Mattress Firm expansion and sustained momentum of our Rejuvenate 2.0. In addition, we expect a sequential acceleration in EBITDA that is fueled by our revenue expansion and the continued momentum from our restructuring initiatives and sourcing improvements.

With that, I'll turn the call over to the operator for questions.

[Operator Instructions] We'll take our first question from Bradley Thomas at KeyBanc Capital Markets.

Congrats on the improvement in the business that you all are driving here. Rob, that's actually where I wanted to start off with my first question. Just as you see the acceleration in sales in the business, I guess, could you speak to what, if anything, are encouraging green shoots that we might be seeing in terms of the industry overall versus how much this is coming from the multitude of initiatives that you all have underway right now?

Thanks, Brad. And hard to put my finger exactly on it. I think most of the people in the category, ourselves included, in Labor Day thought the market was starting to show signs of improvement and then the back half of September was pretty mixed and soft. I think we're the first reporting company in the category, but I'm expecting kind of flattish overall category results. So I think we own both the parts of our business that are working well and then the parts that still need a little bit of work. But wholesale is clearly growing behind expanded distribution. And I'd point out that we're encouraged on our performance because we've had a pretty significant expansion of slots and slot productivity has remained about the same. It's down a little bit in Q1 or Q3 because of all the flooring that we did. But since then, we're seeing it pick back up. So that's the first point.

The second is the showroom performance: 6.5% up, 12% comps. I think 12% comp is going to stand up against any retailer, and we're encouraged by that. And even in e-com, as Todd talked about, we were down about 10% in the quarter. But during the quarter, each month got a little bit better, and we're starting to see the new marketing show some real early signs of success. Too early to declare anything, but we're encouraged on the direction. Finally, on the market, it doesn't feel like it's getting a lot better. It also doesn't feel like it's getting worse. So I think we're probably at the bottom, and we're certainly well positioned to capitalize if the market gets better in Q4 and early 2026.

Maybe I could ask a question just on the margin front or the business front financially more broadly. Clearly, a number of the revenue initiatives that you have underway are going to wrap into 2026 and be a nice boost through the first half of the year. Can you talk to how you think about flow-through to the bottom line and any other margin opportunities for you as we think to 2026?

Sure. So as we look at gross margin, we really are starting to see all of those benefits from the plant consolidation and our restructuring efforts. As we look at it, we've been hitting that 40% gross margin level pretty consistently. And with the 42.8% this quarter, I think we've shown that we've been able to capture those efficiencies and would expect to be at around that 40% level going forward. From a breakeven perspective, we used to talk about the business needing to be at $55 million to $60-plus million a month in revenue. We're down to the point where basically at $40 million or even a little under that per month, we're able to break even and then scale from there to generate profitability very rapidly. The cash just flows through the bottom line very quickly with the model we've developed at this point.

We'll go next to Matt Koranda at ROTH Capital Partners.

It's Joseph on for Matt. I just wanted to see if you guys can kind of bridge us on your adjusted EBITDA guide here. Implied EBITDA in the 4Q is roughly high single digits. Can you bridge us as we exit 3Q on a flattish margin?

Sure. So a big part of what we're looking at in Q4 is the continued revenue acceleration from all the factors that we talked about, moving into what is traditionally our highest revenue quarter of the year. We are on the backs of continuing our expansion in Mattress Firm, the Rejuvenate 2.0 launch, continuing to pick up steam. We also have strong plans as we go into Black Friday and Cyber Monday from our direct-to-consumer channel. So a lot of things really pushing towards the positive on the top line. And while we do that, we're still able to maintain that 40%-ish level of gross margin and strong cost control. So that incremental revenue flows through very quickly.

Then as we kind of approach like the 1,200 mark in -- the 12,000 mark, excuse me, on your Mattress Firm slots, how should we think about it going into 4Q? And then obviously, you guys stated that, that 12,000 should be hit in March 2026. Should it be an even split? Or should we ramp up most of those slots early 1Q '26?

No. I think -- I mean, just to be clear, we're working on a specific collection of Rejuvenate. So a product that's already performing well in the market. And I think that incremental 2,800 slots or something in that neighborhood will happen at the end of Q1.

We'll move next to Bobby Griffin at Raymond James.

Rob, just quickly on just how the quarter played out. I think we were -- we entered the quarter or at least when we spoke last like up, I think, mid-single digits in revenue. and then we finished flat. Was that just a function of the softness of the last couple of weeks? Or did some of the timing of the rollouts change a little bit where there was some expected revenue that just shifted into 4Q?

No, we were chasing Rejuvenate all through the second quarter and into the third. But I think the difference when the first half of the quarter looked like it was developing more strongly and was pacing at a stronger development. And then post Labor Day, the market was just -- for us, at least, was really soft. The discussions I've had with others is it was mixed at best. So I don't think we were unique there. But luckily, we've seen kind of a return to the strength we were hoping in October, but it was after Labor Day.

Then I just wanted to clarify, the gross margin, you guys ended 3Q at, call it, 43 round numbers, 42.8%. You expect it to be down sequentially and that would be down pretty meaningfully year-over-year. And is that just -- what exactly is driving that? It's just the mix going more to wholesale with these launches? Or what exactly is driving that? Because you talked kind of about 42.8%, and then 40% as a round number. So just wanted to kind of clean up where we actually expect grosses to be at in the fourth and what is a sustainable gross margin given the changing mix here of Purple's customer base?

Yes. Let me come at that backwards and see if it gets you what you're looking for. I mean I think 40% and north is clearly sustainable. Period. We think that I don't want to pin a number to it yet, but we can get and stay north of that with our current wholesale mix because the mix hurt DTC to wholesale is being offset by the premium positioning of the product and the way the mix is changing both in wholesale and in e-commerce and showrooms towards the premium product. So I think that's the mix. The down in Q4, what we're planning is a pretty competitive environment, and you spend a lot of the quarter on promotion. And I think that's the biggest drain to that gross margin.

Then it does seem like, look, you got the wholesale business outgrowing with some accounts, nice comp in showrooms. There's still some work to be done on showroom profitability. So I'd be curious to kind of see you unpack -- if you could unpack kind of that aspect of the stores that are not EBITDA profitable. I think you gave some statistic. I missed it on the call.

Then the second part of the question is just maybe it's more strategic, but as this business kind of continues to evolve, you got 2 of the parts of the house growing, e-commerce remains pressured. Just kind of what do you think of the long-term e-commerce opportunity here for Purple? Has it changed now given some of the success with wholesale and what you're seeing out of some momentum in the showrooms? Just curious thoughts there, Rob.

Yes. No, Bobby, we're still very bullish on e-com, and we think we've had a bit of a communication problem that we refreshed the website at the end of September and early October. The early signals of that are that we are moving in the right direction. The mix is improving in e-com as well, not as rapidly as showrooms, but it is improving. So we're not stepping away from e-com at all. And we also are recognizing that as we expand our distribution footprint, e-com as a stand-alone channel will continue to have to work very hard to make the sales that they make, but we're not going to step away from it. And the second -- first part of your question was on showroom profitability. The numbers I quoted is 76% of them were profitable in Q3 versus 56% last year. This channel is going to be profitable.

Showrooms is going to be profitable for us. We've made nice progress. And I would suggest that we probably always have somewhere between 5% and 10% of stores that just either aren't working the way we hoped or are structurally going to be a challenge because of high rent. But it's going to be a vibrant channel that we will go back to investing in, in the future, and we're encouraged by the profitability that they're driving right now.

Very good. Well, I appreciate the details and congrats on some of those moving parts, especially the showroom comp and getting the launch going. So best of luck here in fourth quarter.

We'll move next to Daniel Silverstein at UBS.

Maybe just to start, if we want to unpack the third quarter a bit, how much of the improvement in the wholesale segment was driven by the additional Mattress Firm slots? And maybe a different way of asking is just how is productivity in other retail partners trending today?

Thanks, Dan. So a couple of things. I talked about our Costco business. That continues to grow very nicely. We've been online broadly for them for about almost 2 years. We're now in permanent -- permanent is wrong. We're in in-aisle distribution in 54 of them. And then the year-end year start event, their furniture mod will be in 450. So that's a nice piece of growth that has a lot of upside.

On mattress productivity, the Mattress Firm launch actually hurts your productivity in the short run as you load in all of those floor samples. But we are seeing that the overall productivity held with a significant increase in slots. So to me, that's encouraging. And then we've got other -- a number of other customers that are doing well and maybe a couple that are not doing as well as we want. So it's better than a mixed bag, but there is a mix of performance across our wholesale network.

Then just one follow-up. So to your point, it seems like there's some pretty good visibility into the sales building blocks next year. Specific to the $70 million from Mattress Firm, what's in your control to drive that number potentially higher? And then if the mix skews a bit more to wholesale next year, how might that impact profitability from a margin standpoint?

All right, Dan. I think the wholesale growth doesn't concern me on a margin basis. I think the performance of the premium business will continue to be able to offset that degradation. And the Mattress Firm forecast is built on us performing at levels we've been at. We have not assumed improved slot productivity, but we have held it. So you could build an argument that there's a little bit of risk in that. But we've got to work with them to make sure we're getting the most. And we also have to compete to perform in those slots that we're in. So we're spending more money at retail with them. We're spending more money on marketing and demand creation. And we have a lot of excitement behind the Rejuvenate product that they'll put in, in the first quarter. So it's a difficult environment. They're a challenging partner, but all for the good. We've got to perform and make sure we grow their business. If we do that, ours will develop as we outlined.

That concludes our Q&A session. I will now turn the conference back over to Rob DeMartini, for closing remarks.

I'd just like to close by saying thank you to the Purple employees all across the country that have worked so hard to stabilize this business and get it more durable. And I think we're incredibly well positioned as the market eventually improves. And I want to say thank you to our partners who have stayed with us and showed faith in our efforts.

So with that, I'll close the call, and thank everybody for attending.

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the Purple Innovation's Second Quarter Earnings 2025. [Operator Instructions]

I would now like to turn the call over to Stacy Turnof, Investor Relations. Please go ahead.

Thank you for joining Purple Innovation's Second Quarter 2025 Earnings Call. A copy of our earnings press release is available on the Investor Relations section of Purple's website at www.purple.com.

Before we begin, I'd like to remind you that certain statements made in this presentation are forward-looking statements. These statements reflect Purple Innovation judgment and analysis as of today and are subject to a variety of risks and uncertainties that could cause actual results to differ materially from current expectations. You should not place undue reliance on these forward-looking statements. For more information, please refer to the risk factors outlined in our filings with the SEC.

Additionally, today's presentation will reference non-GAAP financial measures such as adjusted operating expenses, adjusted EBITDA, adjusted net loss and adjusted net loss per share. A reconciliation of these measures to their most comparable GAAP measures can be found in the earnings release available on our website.

With that, I'll turn the call over to Rob DeMartini, Purple Innovation's Chief Executive Officer.

Thank you, Stacy. Good afternoon, everyone, and thank you for joining us. With me on today's call is our Chief Financial Officer, Todd Vogensen.

We're pleased to share our second quarter results, which exceeded our expectations and improved sequentially from the first quarter in both revenue and adjusted EBITDA. Our second quarter revenue reached $105 million, representing a 12.6% decrease from the prior year, but a slight increase compared to last quarter. Within the decline in revenue were 2 positive elements of note. First, demand for Rejuvenate 2.0 surpassed expectations and outpaced supply, particularly in showrooms. And second, the continued expansion of our Mattress Firm led us to ship inventory for the launch ahead of expectations.

While these highlights were partially offset by weaker e-commerce results and the impact of last year's wholesale door exit, we remain encouraged by an improving demand picture and the emerging revenue growth observed this quarter. Additionally, we delivered strong profitability improvements with adjusted EBITDA increasing $1.8 million and 120 basis points versus last year.

We are well on track to deliver positive adjusted EBITDA in the back half of the year with strong year-over-year revenue growth already taking shape this month. We expect acceleration in the second half to be driven by the significant rollout of new retail distribution for Mattress Firm, which is nearing completion and by the success of our Rejuvenate 2.0 launch, which is already increasing distribution and driving higher average selling prices.

These initiatives are meaningfully expanding our reach and will support continued momentum in our path to premium sleep strategy. As we noted our last earnings call, incremental tariffs created notable pressure on gross margin in the second quarter, along with costs associated with ramping up both the Mattress Firm rollout and the Rejuvenate 2.0 launch. With the previous 4 quarters all delivering results above 40%, the second quarter gross margin of 36% is a temporary setback.

With mitigation plans in place to offset tariff headwinds and improvements in manufacturing efficiencies, we remain confident that we'll exit 2025 with a gross margin rate above 40%. We're entering the second half with significant momentum that is expected to continue building as the year progresses, with quarter-to-date revenues up in the mid-single-digit ranges versus same period last year.

We're seeing strong validation of our brand and innovation strategy through the success of Rejuvenate 2.0 launch, which has sold more than twice as many units as our Rejuvenate 1.0 launch through our direct-to-consumer channels. The growing momentum behind our Mattress Firm expansion, which is already rolling out across the country and the deepening partnership with Costco as we prepare to launch in 450 clubs for their year-end furniture show and the strong interest from other traditional and nontraditional partners, which we expect will materialize within the coming weeks.

Turning to our 3 strategic pillars. Our path to premium sleep strategy remains focused on our 3 pillars: pioneering new technologies to drive product leadership, promoting our differentiation to effectively communicate our unique product benefits to our consumers and prioritizing gross margin, driven by ongoing operational improvements.

I'll now walk you through our recent progress against each of these strategic pillars. Innovation remains the cornerstone of our competitive advantage. As I mentioned earlier, we recently launched our Rejuvenate 2.0 mattress collection, a major milestone for Purple and the first product to incorporate our new DreamLayer gel grid technology layered on top of our core GelFlex grid. This combination of technology provides an incredible dream-like sleep experience with each grid playing a different part to elevate comfort while preserving the unique pressure relieving and cooling benefits our customers know and expect.

Rejuvenate 2.0 is now available online and across all showroom locations. Since the launch, we've sold over 1,300 Rejuvenate 2.0 units at an average sales price of approximately $6,000 through our direct channels, with approximately 80% of those sales coming through our showrooms, our most effective channel.

Slot commitments across wholesale remained strong with an increase in non-Mattress Firm slots of over 60%. In the second quarter, we also introduced our new Grid Cloud Pillow, a $149 offering designed to bring the benefits of our grid technology to a broader audience. This innovative pillow launch extended across online platforms, including Amazon, walmart.com and our own website and is now available in over 1,200 Walmart stores featured alongside our ultra-premium Harmony Pillow.

We're encouraged by the early positive consumer response to the Grid Cloud Pillow and look forward to continuing to deepen our relationship with Walmart and other nontraditional retailers. The strong consumer response to these latest launches reinforces our position as a leader in premium sleep technology and affirms the strength of our long-term path to premium sleep strategy.

Looking ahead, our innovation pipeline remains robust with a mix of both incremental performance upgrades across our product portfolio and broader platform innovations that will continue to position us as the leader in the premium sleep category. While delivering better sleep through innovation is what sets Purple apart, how we communicate the benefits of our innovation is critical.

Our refreshed messaging highlights the unique sleep benefits of our Gel Grid technology and focuses on what matters most, less pain and better sleep. As we look ahead, our new marketing will play an important role in an accelerating consideration and conversion across all channels. Our marketing strategy continues to evolve and move beyond traditional category tactics centered on discounting.

Our new brand campaign, less pain, better sleep is resonating with consumers, which we've been validating through diligent testing. The campaign is designed to drive higher conversion on the website and stronger consumer engagement across all channels in the second half of the year.

Now let me turn to how we're bringing our product differentiation to life across each of our channels. Our showrooms continue to play a key role in providing customers with a hands-on experience where our associates can engage and demonstrate the benefits of our products in a personalized setting. While channel performance in the quarter reflects the Rejuvenate 2.0 demand being primarily shipped in the third quarter, underlying sales orders for showrooms open for more than a year were strong at plus 5.5% growth versus the second quarter last year. This encouraging demand signal again drives confidence in our path to premium sleep strategy.

The success of this launch has significantly grown the luxury share of showrooms product mix, now accounting for approximately 40% of order value. In fact, we've sold more than twice as many Rejuvenate 2.0 units during its launch as we sold during the launch of Rejuvenate 1.0, supported by the relaunch of our in-store selling model to further emphasize premium positioning and in-store education.

Based on the early Rejuvenate 2.0 performance, we expect our showroom channel to become profitable in 2025. Similar to our marketing strategy, our e-commerce approach continues to evolve, shaped by a clear view of the consumer shopping journey and the specific role the website plays within it. In the past, our e-commerce was primarily focused on a more narrow segment of consumers who are willing to purchase a bed online in an industry where over 80% of consumers want to experience the mattress in person, particularly for premium-priced products.

As part of our evolving strategy, our e-commerce focus is expanding to include reinforcing the strength of the brand, clearly communicating the less pain, better sleep benefits of our technology and supporting premium positioning across all channels. While the website will still support online consumers, we're optimizing it as an additional tool to drive engagement, education and conversion, particularly for products fulfilled through other channels.

Alongside the new less pain, better sleep brand positioning, we implemented a series of meaningful website changes in the second quarter, including highlighting real-world product benefits like spinal alignment and cooling, simplifying the path to purchase and reducing friction at checkout. While still early, we're beginning to see encouraging signals, and we expect these changes to drive greater impact over the coming months.

We've also been fine-tuning our data-driven targeting through a new engagement with an external partner to improve identification and targeting of our core audience. These insights are already informing media optimization across platforms like Google and Meta to drive ad spend efficiency and return on investment.

Looking forward, we believe that our website enhancements, new less pain, better sleep brand positioning and targeted consumer strategies will drive conversion across our brick-and-mortar channels and renew e-commerce momentum over time. Wholesale revenue was down last year. However, we're encouraged by the meaningful sequential improvement from last quarter, especially against the difficult comparison of positive 7.2% comps last year.

Additionally, wholesale revenue would have been slightly higher if Rejuvenate 2.0 orders had been fulfilled during the second quarter. As we work through the remaining backlog, we unlock the ability to launch Rejuvenate 2.0 into more of our key wholesale partners, which is expected to drive meaningful sales growth in the coming quarters.

A key driver of our wholesale strategy is our expanded relationship with Mattress Firm. As I mentioned earlier, the momentum behind this expansion is strong, and Purple products will be in their full store network by mid-August. In parallel, we're developing an exclusive luxury mattress collection with Mattress Firm scheduled to launch early next year and increase our slot count to approximately 12,000, more than double our previous footprint. This is a meaningful step forward in our distribution strategy, and one that enhances Purple's national presence, expands our reach to premium consumers and includes us in their consideration set as they shop.

Additionally, Mattress Firm's strong commitment to our product and brand is already driving increased interest from other partners. We've recently reached an agreement with one of the largest and fastest-growing mattress retailers in the country. We look forward to sharing more details in the upcoming months.

Beyond mattresses, we're also expanding our pillow and accessory business across all Mattress Firm doors. Later this year, we'll be introducing our new DreamLayer pillow to sit alongside our high-performing Harmony Pillow, further reinforcing our position in premium comfort and wellness. We're also deepening our engagement with Costco through a key limited time promotional holiday event later this year.

Following strong performance during last year's event, we're returning at a larger scale in the fourth quarter, participating in 450 clubs, more than double the number of locations we participated in during the same event last year. This expanded footprint represents a meaningful step forward in our partnership and significantly broadens our reach with a highly engaged customer base.

Our third strategic pillar, prioritizing gross margin expansion reflects the operational discipline we've built over the past year, which has consistently delivered results. While gross margin of 36% marked a temporary setback, our strong performance over the past 4 quarters gives us confidence in a rebound as cost actions take hold, tariff mitigation efforts take effect and manufacturing efficiencies improve as we complete our Rejuvenate 2.0 launch and Mattress Firm rollout.

Excluding these impacts, we would have seen clear margin expansion driven by a more favorable product mix shift into our higher-priced mattress collection and $2.4 million in direct material cost savings during the second quarter with those benefits flowing through as planned. Our sourcing, manufacturing and consolidation efforts are delivering meaningful structural improvements and positioning us for sustained margin expansion.

We continue to actively manage the impact of the recent tariff changes. While future changes in tariffs are difficult to predict, we currently expect our total cost exposure in 2025 to be less than our previous $10 million estimate, thanks to swift mitigation efforts and changes to the underlying tariff rates. We've begun shifting sourcing outside of China. And in July, we implemented a price increase on select products. Our price increases were designed to avoid our most price-sensitive product offerings while protecting gross profit dollars.

As we look ahead, we're reaffirming our full year revenue and adjusted EBITDA guidance. For fiscal 2025, we continue to expect revenue between $465 million and $485 million and adjusted EBITDA of flat to up $10 million inclusive of continued tariff headwinds. Our outlook reflects a continued cautious consumer environment, but also the strength of our innovation engine, improved execution and a structurally stronger business than we had 1 year ago. We're entering the second half with meaningful momentum behind our newest product line, a major wholesale expansion underway and greater operational flexibility to support profitable growth. Todd will go into more detail later in the call.

Before I close, a brief note on the Board's review of strategic alternatives. This process remains ongoing. We have engaged with multiple parties about a broad range of opportunities to maximize shareholder value, including, but not limited to, a merger, a sale or other strategic or financial transaction. We'll continue to evaluate a range of options and provide further information as appropriate. We will not be commenting further or taking questions on this topic during the Q&A portion of today's call.

Now I'll turn the call over to Todd to discuss our financial performance in more detail.

Thank you, Rob, and good afternoon, everyone. As Rob touched on earlier, we're pleased with our performance this quarter, which reflects our continued ability to execute effectively against our strategic initiatives.

I'll now walk you through the financial metrics for the quarter and highlight the areas where we saw progress as well as where we encountered headwinds. Starting with the top line. Net revenue for the 3 months ended June 30, 2025, came in at $105.1 million, which was down 12.6% versus $120.3 million in the prior year. As Rob indicated earlier, the decline was impacted by the timing of Rejuvenate 2.0 shipments, lapping reductions in wholesale door count from 2024 and softness in our e-commerce channel.

By channel, direct-to-consumer net revenue for the quarter was $58.9 million. Within DTC, net revenue for showrooms decreased 13.3% compared to last year as demand for Rejuvenate 2.0 outstripped our ability to supply customers. E-commerce continued to see softness and was down 11.5% during the second quarter. We also experienced a decline in our wholesale segment, where net revenue of $46.2 million was down 13.4% versus last year as we continued to be impacted by door count reductions from 2024.

Despite this decline, we're beginning to see encouraging signs of recovery in our wholesale channel, particularly as we approach the significant expansion of our business at Mattress Firm in the third quarter. Gross profit for the second quarter was $37.7 million compared to $48.9 million during the same period last year. Gross margin rate for the quarter was 35.9%, a decline of 480 basis points compared to last year.

In the second quarter, our gross margin was negatively impacted by tariff-related costs and ramp-up costs related to the Rejuvenate 2.0 launch and Mattress Firm expansion, where rollout costs preceded revenue. As production continues to scale at our Georgia facility, we anticipate greater manufacturing efficiencies and direct material cost savings to drive gross margin improvement through the back half of the year.

Now turning to operating expenses. Operating expenses were $51.9 million, down 18.2% versus $63.5 million last year. The improvement was largely driven by reduced advertising spend and benefits from restructuring and other cost savings initiatives that we've completed over the past few quarters. Excluding restructuring and impairment-related charges, adjusted operating expenses were $47.8 million, down 25% versus last year.

Our adjusted net loss for the second quarter was $11.7 million, an improvement from a net loss of $13.8 million in the prior year. And second quarter adjusted loss per share was $0.11 compared to an adjusted loss per share of $0.13 last year. Adjusted EBITDA for the second quarter was a loss of $2.4 million, an improvement from the loss of $4.1 million last year, driven primarily by our disciplined cost management.

Now turning to the balance sheet. At the end of June, we had cash and cash equivalents of $34.2 million compared with $29 million on December 31, 2024. Net inventories on June 30, 2025, were $60.9 million, down 12.6% compared to June 30, 2024, and up 7.1% compared to December 31, 2024. We were pleased to exit the quarter with cash over $30 million. As we move into the second half, which is traditionally a period of cash generation, we believe that we're well positioned from a liquidity perspective to drive expected growth from our Rejuvenate 2.0 launch and the Mattress Firm expansion.

As Rob mentioned earlier, we are reaffirming our full year guidance. We continue to project full year revenue in the range of $465 million to $485 million, with adjusted EBITDA expected to land between breakeven and positive $10 million. We anticipate sequential growth in the second half of the year, primarily driven by our successful launch of Rejuvenate 2.0 and the Mattress Firm expansion, and we expect to return to positive EBITDA in the back half, bolstered by continued momentum from our restructuring initiatives and sourcing improvements.

With that, I'll turn the call over to the operator for questions.

[Operator Instructions] Your first question comes from the line of Brad Thomas with KeyBanc Capital Markets.

I was wondering, Rob, if you could talk a little bit about the cadence of sales in the quarter and how you're thinking about the acceleration in the business in the second half given some of the moving parts here?

Thanks for your question, Brad. The quarter started slow for sure. April was the softest month of the quarter, and it got modestly better through the quarter. I referenced in my comments that we left a little bit of demand on the table that would have probably had us closer to $110 million than $105 million had we shipped it on the timing we intended. It also would have turned the showroom comps positive for the quarter. So the optimism comes from really 3 parts of the business.

Number one, Q2 was clearly affected by tariffs and start-up of both Rejuvenate and the Mattress Firm business. And we're in a place now into July where we will catch up on the demand, the shipments that are trailing demand on Rejuvenate in showrooms. We'll expand the footprint in showrooms of Rejuvenate -- excuse me, we'll expand the footprint of Rejuvenate into wholesale and then the Mattress Firm expansion, which is going to be about 3,800 slots in the quarter should all be in place by August 15. So the combination of the market kind of trending very modestly better and strong Rejuvenate and Mattress Firm sales, we expect the back half to get stronger as it goes.

That's very helpful. And then understanding that 2Q has been an unusual quarter for many companies given the tariff dynamics, but also for you, given some of these initial ramp-up costs with Mattress Firm. Is there a good way to think about how much might be sort of onetime in nature that you might get back next year?

Yes. In terms of the gross margin and where we're being hit by tariffs and some of the ramp-up costs, really, we expect the ramp-up costs we're largely moving past at this point. Tariffs will continue to mitigate as we go forward. It's a little bit of an uncertain environment to say the least. So we're planning conservatively at this point. But -- we do expect to end the year well north of 40% gross margin rate. So that will be a gradual improvement from Q2 through the rest of the year and then starting off next year in a strong footing at that plus 40% rate.

Your next question comes from the line of Matt Koranda with ROTH Capital Partners.

I think you talked briefly about third quarter trends in demand to date. Rob, I think in your prepared remarks, maybe you said mid-single-digit growth in the aggregate, but I just want to make sure I heard that correctly. And then can you share if that's mostly coming from the wholesale load-in that you're getting with Mat Firm and Rejuvenate? Or is there also some growth in the DTC channel as well?

Matt, 2 parts to it. First of all, there is a little bit of the Mat Firm in there. But remember, the way floor samples ship, they don't really contribute wholly to revenue. So it's probably demand picture is most of that up mid-single-digits and catching up with Rejuvenate where we've been behind in showrooms. So there's positive momentum in DTC, positive momentum in wholesale and some encouraging early signs in e-comm that we think will get stronger.

Okay. All right. That's great to hear. And then I think you guys said positive EBITDA in the second half for the guide. I guess, does that mean that you could be positive in the third quarter? Maybe just talk about sort of the seasonality of profitability as you expect it to play out for the rest of the year here.

Yes. So as we see improvements in revenue that grow sequentially and the same in gross margin, that will flow through to our EBITDA results. So really, we expect to see gradual improvement on the EBITDA side of things, probably a little bit more Q4 weighted just based on the fact that we'll have a full quarter of Mattress Firm and Rejuvenate 2.0, and we'll have the high side of our margin improvements. So we're not really guiding to the individual quarters, but to think about it in terms of a slope upward towards Q4 is probably the right way to think about it.

Okay. And then maybe if I could just sneak one last one in there. The -- I think you mentioned, Rob, in your remarks, there's another large retailer that you could be ramping up with on a wholesale basis. Does that impact '25? Or is that more likely a '26 event that we should be kind of factoring in?

Because of the timing of it, there will be a modest positive impact in Q3 and Q4, probably in Q4, still working out the details, but it will be a nice chunk of business in '26 for sure. But there should be a little bit of upside in the back half.

Your next question comes from the line of Robbie Griffin with Raymond James.

This is Bobby from Raymond James. Congrats on the early momentum in 3Q. So I guess, Rob, first, just a clarification, the temporary ability to fulfill, is that now corrected? And how is the capacity with obviously, the Mattress Firm account coming on, and you mentioned maybe another decent-sized retailer later this year. Like how is the fulfillment capacity and all that going forward looking?

Yes. I think there are probably 2 parts to my answer, Bobby. Thanks for the question. The first is the most encouraging part is demand in showrooms. We projected it to improve, but we started selling it, and I'm going to forget the exact timing, but kind of halfway through the quarter, if I remember right. And the unit sales are about 2x its predecessor. So that's the good news. The bad news is we planned a little too much of a swimmers' turn and didn't have much flexibility to catch that and left the quarter with about $4 million to $5 million of normal demand that should have been fulfilled.

We are catching that up by the end of this month, and today is the 29th, so I get we're at the end of the month. We should be cutting those lead times about in half. And by mid-August, we'll have them back to normal delivery times. At the same time, the demand in showrooms has encouraged our wholesale partners and those slots commitments continue to grow modestly. And so we're going to have to make sure we don't launch ahead of supply, but get that wholesale footprint fully deployed as fast as we can in Q3.

Okay. That's helpful. And then on the tariff side of things, remind us the mitigation efforts. Have you guys started to adjust pricing yet for tariffs? I believe we've picked up some of our checks to just confirm that for us. And what have you seen -- like I think everybody is trying to zero in on what the inelasticity of demand is or the impact of demand from these tariffs. So what have you seen on units velocity for SKUs that you have adjusted?

Yes. So we announced about 60 to 80 days ago and the normal wholesale -- we could have taken pricing a bit sooner, but we learned the hard way a couple of years ago that we can't take pricing ahead of the wholesale lead times or we end up creating a bit of an arbitrage problem. So we took pricing on [ 722. ] So we don't have much read yet. I know the customer reaction, not consumer but customer was not a lot of concern. The pricing was a little bit less than 2% or about 2% and we stayed away from the items that we felt were absolutely either price point tethered or the most sensitive.

So we don't expect a big consumer pushback, what the -- 7 or 8 days we've seen on the website on pillows in particular, we crossed the decile and we have not seen any negative reaction. So I don't think we're going to get any punishment for it. I think the trade understood it and appreciated that we gave them the notification lead time even though we did not get that from the tariff structure. So we're not expecting a big negative reaction to the pricing.

Appreciate. And then lastly for me, we got Mattress Firm coming on. It looks like the business is starting to inflect here if we get the EBITDA in the back half. Just as we roll into '26, EBITDA shows up and this business starts to generate cash and free cash flow, what's some of the priorities for cash? Is it debt paydown at first? Or how do you and the team think about that?

Yes. So you're heading down the path that we have been thinking quite a bit about it. As the business is generating this momentum, we think it does set us up really nicely from a cash perspective as we go into next year. Priorities, we are going to be looking at our store footprint as showrooms are continuing to show great results for us, looking at how we get back into the game of actually growing our store footprint and looking at how we're deploying capital internally. We think that's the best use of cash.

Beyond that, yes, no specific plans. We want to make sure that we have built up an appropriate cash cushion for ourselves and that we're investing the cash back in the business and the things that we think will continue to generate the best returns for ourselves.

Your next question comes from the line of Dan Silverstein with UBS.

Maybe the first one, do you still expect the additional Mattress Firm distribution to be around, call it, $70 million in revenues next year? And then for this year, for that contribution, should we kind of assume like a pro rata amount? Just trying to get a better picture of comparable like-for-like trends today.

Yes. I mean the distribution should be in place by August 15, so it will start generating volume in the back half of the coming month and then through the rest of the year. And then by next year, as I said in my remarks, we are working on a premium Lux [ line ] with Mattress Firm and expect that to be in place. Timing is still TBD, but around the end of the first quarter, beginning of the second. So we'll end up with a footprint that is 12,000 slots on a year ago base that was sub-6,000. So we're pretty optimistic about what that should produce.

Got it. And then maybe just moving aside from Mattress Firm, you pointed out some things on the come and some positive progress already with nontraditional retail partners like Costco and Walmart. Maybe you could just take a minute and frame business in these type of channels today relative to the opportunity you see going forward over the next few years.

Fundamentally, in the wholesale channel, we've got to make sure that our furniture and mattress retailers are well stocked, well supplied and well supported so we can move that product through, that's the primary focus of our business. But I think as others have learned, and we're still a pretty young company, the right business in the right alternative channels, whether that's Walmart or Costco or HomeGoods or QVC, done well and done in a way that is both accretive to the brand, accretive to the margin and not disruptive to the traditional wholesale customers can be a nice chunk of business, and we still have way more opportunity in front of us than behind us in that case.

The club -- Costco is a good example. We were in 170 clubs. We've been in distribution online for about 1.5 years, but we're in clubs for 170 clubs last year, and they had a nice piece of business. And the one that I spoke about earlier is going to be 450 clubs. So it's meaningful, it's profitable. And in many cases, it's very good for the brand reputation if you do it in a way that doesn't disrupt your traditional customer channels.

Your next question comes from the line of Brian Nagel with Oppenheimer.

So the first question I have, just on the gross margin in the quarter. As you talked about there being -- it would seem like more or less onetime pressures there. So wondering if you could just articulate that a little bit more, what those were, the size of them? And then how quick -- as we look into Q3, Q4, how quick will these onetime pressures abate? And maybe another way to ask the question is, how should we be thinking more specifically about the gross margin in Q3 and Q4?

Yes. So if you look back, we had greater than 40% margin for the last 4 quarters. So we've kind of demonstrated that, that is a level that we can operate at. As we got into this quarter, as you mentioned, tariffs were new. Now we do have plans in place to start mitigating that to a degree, we obviously won't be able to mitigate all of it, but that was probably a little bit more than half of the reduction in margin that we saw this quarter. So you'll see that mitigation come through across the course of the rest of the year.

The other bit about ramp-up costs, that is really something that we believe we've addressed at this point. So a lot of that will come back to us even as we get into Q3. So as you look at margin across the rest of the year, and then in addition to that, I should mention, there's ongoing efficiency projects that we're working on that are really bearing fruit. There's a lot of projects along the mode of direct material savings and sourcing savings that kind of ramp up as we get through the rest of the year. So there's a lot of tailwinds behind us on the gross margin front. They really do build as we go through. So as you look at it, we'll be north of 40% as we exit the year in Q4 and then ramping up towards that as we get through the third quarter.

Got it. That's helpful. And then let's see if I can ask this correctly. So if you look at the quarter, at least from my perspective, I think one of the most significant positives here is that sales ramp and particularly what you're seeing thus far in Q3 with that rather sizable or meaningful growth year-on-year growth. Is the gross margin -- the question I have is, is the gross margin degradation in the second quarter completely disconnected in other words, not a driver of the better sales we're seeing?

I don't know if I'd say it's disconnected because a chunk of it was start-up cost, but it was amplified in Q2 because we got all the start-up costs and not the replacement benefit by getting all that Rejuvenate shipped as it should have. So I think the tariffs, we believe will mitigate a majority of that, as we said in the remarks. Direct material savings continue and we got the benefit of all of the start-up costs and very little of the replacement benefit coming. So again, we're confident we'll have a back half that certainly exits above 40%.

I will now turn the call back to Rob DeMartini for closing remarks.

First, I'd like to just say thank you for joining us on today's call. We remain focused on disciplined execution, our innovation schedule and building a premium, sustainable and profitable brand for the long-term. I'd like to extend my sincere thanks to our associates for their hard work through some pretty difficult times and our customers for their continued loyalty. Thank you.

Ladies and gentlemen, that concludes today's call. You can disconnect. Thank you, and have a great day.